Turkish Inflation to Remain High as Rates Hold
Turkey's Central Bank is maintaining its one-week repo rate at 38%, with the next decision scheduled for March 12. HSBC projects that Turkish inflation will stay above single digits until at least 2028, signaling a prolonged period of high operational costs and currency volatility for startups.
- The Central Bank of the Republic of Turkey has revised its year-end inflation forecasts upward, projecting 44% for 2024 and 21% for 2025, a significant increase from previous estimates. This revision is attributed to factors like the underlying inflation trend, food prices, and adjustments in administered prices. - Despite the challenging macroeconomic environment, the Turkish startup ecosystem attracted a record-breaking $2.6 billion in total deal volume in 2024, a significant increase from $497 million in 2023. However, the number of deals saw a more modest rise to 331 from 297 in the previous year. - Foreign investor participation in Turkish startups reached a five-year low in 2024 in terms of deal count and proportion, though interest remains stronger beyond the seed stage. In contrast, domestic investor participation in larger rounds between $10 million and $100 million increased from 16% in 2023 to 30% in the first half of 2024. - In 2024, fintech was the leading vertical in the Turkish startup ecosystem by the number of deals, followed by biotech and artificial intelligence. AI, SaaS, and gaming were also among the top sectors attracting the most investment. - The Turkish government has launched initiatives to bolster the tech sector, including the "Turcorn 100 Program" to support scale-ups, and the "HIT-30" program, a $30 billion incentive package for high-tech sectors like electric vehicles, batteries, and renewable energy. - A significant driver of early-stage investment has been the TÜBİTAK BiGG Fund, which transitioned from a grant program to a pre-seed fund and made 231 pre-seed investments in 2024. This initiative helped make Turkey the top country in Europe for pre-seed investments in the first nine months of 2024. - High inflation and interest rates are creating significant pressure on Turkish companies, leading to rising business costs, reduced access to financing, and weakening demand. This has resulted in an almost 40% increase in business closures in July 2024 compared to the previous year and a decline in production capacity utilization. - The government's 2030 Industry and Technology Strategy aims for Turkish tech startups to reach a collective valuation of $100 billion and to triple the country's high-tech exports to $30 billion by 2030. The strategy focuses on key areas like AI, defense tech, electric vehicles, and semiconductors.
